Yes, you can lose a lot from a lawsuit, including homes, property, investments, bank accounts, and more. If you’re unable to pay the judgment from a lost lawsuit, the creditor can file a lien on your property, even seizing from you to pay your debts.
If you work in a high-risk profession like as a lawyer, or doctor, you’re constantly at risk of being sued. But if someone sues you, can they take your house? We want to answer this question and explain how you can protect yourself from lawsuits, creditors, and even the government.
Legal Basis for Law Suits
We live in a world where lawsuits are a matter of fact. This could be attributed to personal conflicts, business disagreements, or debts. Whatever the reason, the motive for litigation needs to be irrefutably established. A lawsuit can result in catastrophic consequences such as losing your assets, like your home.
Lawsuits are normally based on a legal right, where one party has been wronged by another. This can get a little technical due to conflicting statutes and what evidence exists of the wrong.
The Basics of Civil Lawsuits
Civil lawsuits enter the courts when one party, known as the plaintiff, wants to win compensation from the other (the defendant) because of harm caused by a breach of civil law.
The general aim of these proceedings is often to get paid for damages, resolve disputes, or simply enforce certain rights. While criminal cases are brought by the state (even if initiated by an individual), civil lawsuits are initiated among private parties.
If the plaintiff wins, the court can enter a judgment for monetary damages against the defendant. This could put their financial stability and assets at risk. The protracted nature of civil litigation can also eat into your estate, costing a fortune on legal fees during the process.
Common Reasons for Lawsuits
Lawsuits can be started for a multitude of reasons. There are some of the most common reasons.
Contract disputes:
When a party fails to deliver as per the contract, it can be deemed as a breach of contract that leads to legal action.
Property disputes:
Real estate matters, most notably disputes involving property ownership or land use, often lead to litigation.
Negligence claims:
These cases are about personal injury where the suing party claims damages on account of carelessness by other parties.
Fraud allegations:
Legal fights can quickly spiral into situations where one side deceives the other to benefit at their expense.
All of these grounds have different legal consequences and can have a major effect on an individual's financial and emotional situation. In cases of negligence, the plaintiff bears more burden of proof that the defendant caused harm.
On top of this, fraud cases often require a great deal of paperwork and witnesses to be brought in just to prove such deceit took place. This is an important detail for those considering taking legal action, as the results could change entire lives.
Judgments in Litigation
The conclusion of a lawsuit is usually the judgment in the case. In the resolution of the dispute, this is considered as the official decision of a court.
Judgments can establish liability for a defendant or dismiss claims for many reasons. However, judgments do have consequences and this is often where the rubber hits the road. And this is where the defendant can lose a lot of money or even their home.
What is a Judgment?
A judgment is a formal decision made by a court following a trial. It states in clear terms the rights and obligations of those involved. It also compels a defendant to either pay compensation or deliver some specific action. While a judgment can be the result of many types of cases, it most commonly arises in civil matters when monetary relief is sought.
The court order states the exact terms of a judgment. At that point, it may also become a public record. This can also have an impact on the defendant's credit score, which limits their future ability to obtain loans or get finance for any purchase.
Judgments will also continue to be reported for several years on your credit report, making it more difficult to obtain good interest rates or housing.
In What Ways Can Judgments Affect Your Property?
An order can trigger many bad results. This might mean that the defendant will not adhere to what a legal court orders them to do. For example, if the judgment is for the defendant to make payments, they might refuse and trigger a more serious step.
In this case, the creditor can go to court and have the judgment enforced. This is when someone who is suing you can take your house as payment for the judgment against you.
But this isn’t the only option. When a creditor has won a judgment against you and the debt remains unpaid, they may take such actions as wage garnishment, bank levies, or liens on your property.
If you have a lien on your house, such as a tax lien, it can hinder your ability to sell or refinance the property unless you clear up the debt. On top of that, a lien may cause problems with future financial transactions because it will need to be satisfied before the deed can switch hands.
In addition, judgments can affect your professional life. In certain industries, having a judgment against you may be a red flag for an employer running background checks.
The Process of Property Seizure
When a creditor needs to collect on a judgment, they usually rely upon the seizure of property. That can be a laborious and invasive process, particularly for homeowners. Understanding this process is critical to your preparation of how you’ll protect your assets.
How Creditor Can Reclaim What You Owe
The process for seizing property generally happens only after they take multiple steps as defined by state laws. First, the creditor needs to get a judgment confirming that it is legally entitled to collect a debt. After the judgment is settled, they may seek a writ of execution. This is a legal document that grants them the right to seize the home.
The most common methods of property seizure are as follows:
Wage garnishment:
The creditor can have a portion of your wages automatically withheld and sent to the creditor.
Bank levies:
Your bank account may be garnished to pay your debt.
Judicial sale:
Your house, or other type of real estate, can be sold at a public auction to satisfy the debt.
Changing this information can mean the difference between a person becoming financially unstable or losing their home. For example, wage garnishments strip take-home pay to the point that it becomes impossible to meet basic living expenses.
On the other hand, a bank levy can have people rushing to pay bills when they might not be able to access their money suddenly. The personal cost of a judicial sale is the hardest because it may rip away your family home.
Legal Protections Against Asset Seizure
Creditors have the means to enforce the collection of debts, although there are numerous laws protecting you from losing all your property. The purpose of homestead laws in many states is to protect a home from forced sale by a creditor.
Moreover, certain kinds of assets, like retirement accounts or some personal property, may be protected from seizure under local law. Understand these protections and, if needed, speak to a legal professional to help use them appropriately.
Bankruptcy And Lawsuits
Bankruptcy is the legal process for wiping the slate clean for individuals or businesses whose debts have become completely unmanageable. It provides a way of relief from creditors and the threat of losing property, such as your home.
When people are looking at losing assets from judgments from lawsuits, many of them consider bankruptcy as a viable option. Like so many others struggling to meet their financial commitments, it is important to know how bankruptcy can protect your home from being taken by someone who sues you.
How a Bankruptcy Can Help Save Your Assets
Generally, bankruptcy enforces a law that immediately stops most collection activities against you the moment you file. This includes any legal restraints, judgments, or claims against your property.
If you qualify for Chapter 13 bankruptcy, however, you might be able to keep your home. This form of bankruptcy lets you consolidate their debts and devise a payment schedule that enables them to hold on to what you own while paying off creditors.
Being able to retain a key asset (e.g. vehicle, home) provides tremendous emotional solace in difficult financial times. Most Americans have the majority of their value tied up in their home, and if someone sued them to take their house, that could permanently damage them.
Chapter 13 is uniquely helpful for those who have a reliable income stream to work with that it permits them to come up with easier payment arrangements with their creditors. In this way, bankruptcy can actually be a road towards financial solvency.
Limitations on Bankruptcy Protection
Although bankruptcy does offer a great amount of protection and relief, it is not the perfect solution for every financial issue. Some forms of debt, like tax bills, student loans and child support payments typically can't be wiped out through bankruptcy. The process also has long-term consequences in changes to credit scores and public records, affecting future financial opportunities.
Moreover, for bankruptcy protection, you need to clear the means test and be asked some comprehensive questions regarding the financial behavior that led to your bankruptcy. This usually means explaining any big-ticket items you’ve purchased or assets transferred within the last two years.
It is very important to consult a bankruptcy lawyer before performing any action. A competent attorney can guide you through the maze of bankruptcy laws and help you determine what is best for your individual situation.
How to Protect Your House From Lawsuits
Protect your home from lawsuits and creditor actions by being proactive. There are a number of ways in which people can work to reduce their risk and strengthen their legal safety nets. A little action today can make a world of difference to tomorrow’s lawsuits.
Insurance Coverage in a Lawsuit
One of the most basic ways to safeguard your house along with all that you have in it, is through insurance coverage. Most homeowners insurance have liability coverage, this type of policy can give you a safeguard from getting sued in the case of injury or property damage.
Review and buy a new insurance policy if necessary to make sure that the coverage limits will protect you from future claims. And, umbrella insurance policies provide an additional level of coverage on top of homeowner's insurance to continue covering your assets.
Be sure to revisit your policies annually and whenever you experience any major life event, such as marital status changes (marriage or divorce) or having kids. That could change the actual structures of your risk profile and you may need to amend your protection. Speaking to an insurance agent can let you know what policies are best suited for your situation so that you don't under-insure yourself against potential liabilities.
Asset Protection Strategies
These are just a few of the asset protection strategies that you should be considering besides insurance. These can include:
Trusts:
A trust is one way to protect property from creditors and lawsuits, allowing you to place all your assets in a legal entity that protects it from personal liability.
Property Ownership Structures:
If you own investment property, consider holding the property in a limited liability company (LLC) or corporation to provide a barrier between personal assets and potential liabilities.
Preemptive Transfers:
If and when assets will be transferred to family members or other entities are crucial pieces of information, it needs to occur legally and should not result in allegations of fraudulent transfers.
Many of these tactics will require dedicated planning and in some cases, the assistance of a professional, but the payoff can be worth it when safeguarding the home you live in.
Can A Lawsuit Take Your House?
The reality is that someone can sue you and take your house. A lawsuit can be devastating, costing you more than just your home, but your way of life. That’s a scary truth, but it’s a fact of life. But that doesn’t mean you need to just sit back and accept it. You can take steps to protect your home and all your assets against any sort of legal judgment.
If you’d like to discuss your options, especially with trusts, we can help. Let us know you’d like to talk by filling in the form below. We’ll reach out and start working on a plan to save your home, your investments, all your assets with the right trust.
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